HP's Whitman: Sales Growth Unlikely In FY 2014

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Hewlett-Packard CEO Meg Whitman Wednesday told Wall Street analysts that the $120 billion computer giant is no longer planning for sales growth in the next fiscal year due in large part to execution issues with HP's Enterprise Group business.

"We now expect that total company year-over-year revenue growth in fiscal 2014 is unlikely," said Whitman, who had expressed hope just three months ago that sales growth was possible in the next fiscal year. "That said, I remain confident we are making progress in our turnaround."

In fact, Whitman said HP will see "pockets of year-over-year revenue growth across certain parts of the business in 2014." HP is expected to give more guidance for the next fiscal year sales and earnings at its securities analyst meeting on Oct. 9.

The shifting revenue growth picture came after HP reported an 8 percent drop in sales to $27.2 billion in the third fiscal quarter ended July 31 compared with $29.7 billion in the same period one year ago. HP reported a 15 percent drop in non-GAAP net earnings for the quarter to $1.7 billion compared with $2.0 billion in the year ago quarter.

HP's enterprise business in the quarter was down 9 percent to $20.58 billion compared with $22.32 billion in the year ago quarter.

Whitman put HP COO Bill Veghte in charge of fixing the company's struggling enterprise group business. "Fixing execution across enterprise group will be Bill Veghte's top priority in his new role," said Whitman.

Veghte replaces HP Enterprise Group Executive Vice President Dave Donatelli who is taking on a new role focused on identifying early-stage technologies.

The "net impact" of HP Enterprise Group "execution challenges" Whitman said, is an expected loss of "five points of market share on a revenue basis."

HP, in fact, is facing severe market pressure from rival Dell even as Dell faces uncertainty closing out a $24.8 billion leveraged buyout. Dell's server unit shipments in the second quarter were up 4.8 percent to 552,486 units, just 28,684 units behind No. 1 global shipment winner HP, whose global shipments declined 13.6 percent to 581,170 units during the quarter, said sources who have seen the preliminary data from market researcher IDC.

"Overall the enterprise group's performance was very disappointing," said Whitman. "Enterprise group profitability was pressured by lower revenue particularly in ISS [Industry Standard Servers]."

Mont Phelps, the CEO of NWN Corp., one of HP's top enterprise partners and No. 88 on the SP500 with $266 million in annual sales, praised Whitman for taking bold and decisive action in the wake of the HP enterprise shortfall but still emphasized that HP had underachieved. "I can't understand it. How do you lose this kind of market share to Dell?" asked Phelps.

"HP is getting beat on the street in some cases in the server world by Dell and they shouldn't be," he said. "My view is that they do have execution issues and they didn’t have the competitive edge that was necessary to win in the marketplace."

While a large group of EMC's investors continue to hope that EMC will sell parts of itself to create more clear valuation for them, EMC is likely heading in the opposite direction by considering more acquisitions, according to a top analyst.